Single Factors Summary

Single Factors Summary

Here are the main points for the one-factor tests:

  • Valuation factors have a strong predictive power to achieve market outperformance.
  • The mid-cap companies seem to outperform the small-cap and large-cap companies except for the results of the ERP5 rank.
  • The fact that a company generates a high return on invested capital does not make it a market-beating investment; valuation is more important.
  • Investing in companies with a good F-score, which suggests improving fundamentals, results in market-beating returns.
  • Winners continue to win, and losers continue to lose, as shown in our test using 6-month price index and 12-month price index.

In the following table, we show how all the single factors we tested met our criteria of being classified as strong factors.

As a reminder, this is how we defined a strong factor:

  • The top quintile (Q1) outperforms the bottom quintile (Q5), and
  • There must be a linearity of returns among the quintiles (quintile one must outperform quintile 2, which must outperform quintile 3, up to quintile 5), and
  • The strategy must also consistently outperform the market over time. We defined consistent outperformance when the first quintile (Q1) outperformed the market portfolio 60% or more of the time.

Single factors summary 1

Single factors summary 2

Single factors summary 3

Single factors summary 4

If you only looked at the first quintile of every single factor we tested, this detailed the two best and worse strategies for each market size group of companies:


Single factors summary 5


Single factors summary 6


Single factors summary 7